July 10 2006

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For the week of Jul 10, 2006 --- Vol. 4, Issue 28

Last Week in Review

BAM! It's not the aftermath of holiday pyrotechnics, it's not Emeril Lagasse whipping up a tasty stir fry…it was the sound of the market action reopening with a bang following the Independence Day Holiday. A few big headlines hit on Wednesday, including saber-rattling actions by North Korea, as they test fired six missiles, one of which was long-range and capable of reaching the US. Japan and other surrounding countries, as well as the US, are protesting the actions of North Korea, and are threatening economic sanctions. More fireworks on Wednesday included a survey released by the world's largest paycheck processor, Automatic Data Processing, Inc. (ADP), showing an increase of 368,000 new jobs for June. Because this was more than double what experts had forecast, the news was seen as a big red flare by traders, and Bond prices and home loan rates worsened. But on Friday, when the actual news hit of only 121,000 new job creations during June, markets and rates recovered their losses and stabilized. It appears that ADP should stick to printing out paychecks, rather than attempting to forecast economic data. Home loan rates bounced around midweek, but after all the smoke cleared, ended the week exactly where they started. DID YOU KNOW…THAT EVERY SINGLE TIME YOU MAKE A LONG DISTANCE CALL, YOU ARE HIT WITH A TAX DESIGNED TO HELP SUPPORT THE SPANISH-AMERICAN WAR, WHICH WAS ONLY SIX MONTHS LONG AND ENDED OVER A HUNDRED YEARS AGO? THAT TAX IS FINALLY BEING LAID TO REST…DON'T MISS THIS WEEK'S MORTGAGE MARKET VIEW FOR ALL THE INTERESTING DETAILS, AND HOW YOU GET YOUR REFUND!

Forecast for the Week

The week ahead is thin for economic reports until Friday arrives with Retail Sales numbers, which should be a good indicator of how inflation and the increased cost of borrowing is impacting the consumer in terms of buying decisions. And since your own buying decisions are a part of these numbers, think about it…have higher prices, expensive fuel costs and increased interest rates changed your own purchasing habits? The Retail Sales numbers will be interesting to see, and better believe the inflation-fighters at the Fed will be watching closely as well. They said that the decision to continue hiking rates or pause will depend on incoming information, so this report will be very important as they mull over their next move. Since economic news will be light for the early part of the week, Bonds will likely follow technical guidance. The chart below shows how Mortgage Bond prices have suffered over the last several months, driving home loan rates higher. Several technical signals are in our favor to indicate some improvement in Bond pricing and home loan rates…but a major improvement based on technicals is unlikely. Bond pricing will probably stabilize over the course of the week…and since Bonds and home loan rates respond favorably to negative economic news, a weak Retail Sales number would bring some improvement to both. Chart: Fannie Mae 6.5% Mortgage Bond (Friday Jul 07, 2006)

The Mortgage Market View...

Ever reviewed your home telephone bill, cellular phone bill, or if you are a business owner, your company phone bill and wondered why each and every month you are being charged a "Federal Excise Tax"? More importantly, have you ever wondered if you could avoid the tax altogether or get a refund? Wonder no more…the IRS recently announced that it will stop collecting the Federal Excise Tax on long distance phone service, and taxpayers will actually be eligible to file for refunds of all excise tax paid on long distance service billed to them from February 28, 2003 through July 31, 2006. And believe it or not, the IRS will even pay you interest on these refunds! (Yet of course will tax you on the interest you are paid.) But before we jump into how you get your refund back, let's take a step back in time and look at the history of the Federal Excise Tax. The tax was imposed in 1898, and was originally a tax on the affluent because phone service was a luxury back in 1898. The purpose of the tax was to help pay for the Spanish-American War which lasted six months. But after the war ended, the tax continued and consumers have paid well over $300 billion to pay for a war that cost only a tiny fraction of that amount. And with the current excise tax rate being 3% of the charges billed, that amount can be significant! For example, if your telephone bill is $100 the federal excise tax is only $3 a month but, if you are a business owner and your phone bill runs $10,000 that number is $300 a month. And with many consumers having more than one telephone service, the excise tax can add up pretty quickly. So, how do you collect your cash? The only way to obtain your refund is with your tax return. Tax forms will include a line for requesting the overpayment amount, and the refund can be claimed on 2006 returns due in 2007. To determine the amount of the refund, the IRS is working on a simplified method - similar to the sales tax deduction - which will allow you to use an IRS table amount to claim your refund. Or…similar to itemizing deductions on your return, you can gather up those old phone records dated after February 28, 2003 and add up the actual amount. For some, this could result in a larger refund and may be worth the effort. And although interest will be paid on the refund amount…don't forget that we're dealing with the IRS…the interest is taxable and will need to be reported on your 2007 income tax returns. An interesting thought ......we all know that the IRS moves really, really slowly when it comes to change. But who would have thought that it would take over a century to repeal the federal excise tax?

The Week's Economic Indicator Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of July 10 – July 14 Date ET Economic Report For Estimate Actual Prior Impact

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.

As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.